When eCommerce retailers are starting out, many have to decide whether they should dropship or stock their own inventory. Retailers often approach this as a binary decision—"Should I dropship products or stock physical inventory?”
But what if we told you there's a savvy middle ground that blends the advantages of both? Welcome to the world of hybrid dropshipping.
Here, you can enjoy the benefits of stocking your inventory while sourcing and shipping products directly from external dropshipping vendors.
The beauty of hybrid dropshipping lies in its layered inventory approach. It enables retailers to sell products from their own inventory, but when a product goes out of stock locally, the orders can be placed directly with the manufacturer or a distributor. This enables eCommerce retailers who use this method to keep products in stock more often than their competitors do.
Ready to unlock the potential of hybrid dropshipping and give your eCommerce business a competitive edge? Read on to discover how this innovative approach can set your business on the path to growth!
What Is Hybrid Dropshipping
Hybrid dropshipping is a business model that combines traditional inventory stocking practices with dropshipping. With this method, a retailer keeps some products in stock in their own warehouse or brick-and-mortar store, while other items are dropshipped directly from suppliers to customers.
A hybrid dropshipping business capitalizes on overlapping fulfillment methods. On the one hand, businesses can offer a broader product range by including drop-shipped items without needing the physical storage space. On the other hand, by keeping popular items in stock, they can ensure faster shipping times and better quality control.
|
💡Large Retailers Are Using a Hybrid Order Fulfillment Process Large retailers are almost always using the hybrid approach to dropshipping. Big retailers often say they are shipping from one of their ‘warehouses.’ Behind the scenes, the warehouse may be one of their physical locations, a 3rd party logistics company (3PL), one of many distributors that stock the product, or directly from the product's manufacturer. Each of these could be considered their warehouse. This is one of the reasons that large retailers have items in stock when smaller retailers do not. Larger retailers use the hybrid approach by stocking products in their warehouses and searching in external warehouses. |
Below we will discuss the two types of fulfillment methods that make up a hybrid dropshipping approach.
Types of Fulfillment Methods
In hybrid dropshipping there are two ways to fulfill orders:
➡️ In-house fulfillment
➡️ Dropshipping fulfillment
🔶In-house fulfillment
In-house fulfillment (also known as self-fulfillment) is the process of managing all aspects of order fulfillment within a company's own operations rather than outsourcing these tasks to a third-party logistics (3PL) provider or having a vendor or manufacturer ship directly to clients.
It encompasses receiving, storing, and inventory management of products, packing orders, managing shipping and handling processes, and overseeing returns and exchanges.
Businesses using in-house fulfillment have direct control over the entire process, which can lead to better quality control, faster shipping speeds, and potentially higher customer satisfaction.
However, it also requires substantial resources, including warehouse space, manpower, and systems, to efficiently manage inventory and process orders.
🔶Dropshipping fulfillment method
Dropshipping is a fulfillment method in which an eCommerce store doesn't keep the products it sells in stock.
Instead, when a store sells a product, it purchases the item from a third party—usually a manufacturer or wholesaler—and has it shipped directly to the customer. This means the merchant never sees or handles the product.
The key advantage of the dropshipping model is its low upfront investment, making it an attractive option for budding entrepreneurs. However, as the store owner has less control over order fulfillment, it could lead to potential issues with product quality, delivery times, and overall customer satisfaction.
The Pros and Cons of Hybrid Fulfillment
Pros
✅Flexibility
A hybrid fulfillment model offers more flexibility compared to other models. Depending on the product, the order volume, and the season, you can switch between in-house and dropshipping as needed. This allows your business to adapt to changing circumstances and customer demands.
The hybrid fulfillment approach provides the perfect blend of flexibility and control, catering to the diverse needs of different businesses. For instance:
For retailers that exclusively dropship
Take businesses that rely solely on dropshipping. By using a hybrid approach and maintaining a local inventory of bestsellers, they gain more control over shipping costs and methods, eliminate 'dropship fees', and are able to offer premium shipping options. Moreover, stocking popular items locally can give them an edge on marketplaces like Amazon or eBay when other dropshippers run out of stock, making them the go-to seller.
For retailers that exclusively stock inventory
On the other hand, businesses that exclusively stock inventory can also benefit from hybrid dropshipping. They can consider dropshipping less popular items directly from distributors or manufacturers, expanding their product range without overloading their inventory.
Let's say you're an auto parts retailer who doesn't want to stockpile rare or outdated parts. With hybrid dropshipping, you can still offer these niche items by shipping them directly from the distributor while keeping popular, high-profit items in your own warehouse.
This approach lets you strategically play with margins. You can sell high-margin items from your warehouse while dropshipping less popular products with lower margins. This expands your sales volume with each vendor, giving you a better position to negotiate pricing tiers and improve profit margins across the board. Hence, hybrid dropshipping offers the perfect mix to boost both your top and bottom lines.
✅Durability
Embracing a hybrid dropshipping model doesn't just bring flexibility; it also strengthens the resilience of your business. You're essentially safeguarding your operations against potential hurdles by utilizing multiple methods. Think of it as having a multi-pronged strategy for your online store.
If you encounter a hiccup with your own stock, like equipment failure or inventory shortage, your dropshipping channel can act as a buffer, ensuring your customers continue to receive their orders on time.
Similarly, if there are challenges with your dropshipping partners, such as supplier issues or shipping delays, you can ramp up your in-house fulfillment to maintain the order flow.
✅Cost-effective
Utilizing dropshipping for certain items can help you save on storage and shipping costs.
✅Control over inventory
While you can dropship certain items, keeping some inventory in-house allows you to control the stock of your bestselling products. This can help prevent stockouts and backorders that can damage your brand's reputation.
✅Experimentation
A hybrid model allows you to test new products in the market without committing to large inventory purchases. You can dropship these items and if they perform well, you can consider stocking them in-house.
Cons
❌Complex management
Operating both in-house and dropshipping models means managing two separate systems, which can get complex. You'll need to closely monitor your inventory, handle different shipping procedures, and maintain communication with your internal team and dropshipping suppliers.
However, an eCommerce automation solution like Spark Shipping can help you manage this easily by allowing you to map multiple vendors, including your warehouse, to a single product listing.
❌Quality control
With dropshipping, you don't have direct control over the product's packaging and shipping, which may lead to inconsistencies in the customer experience. While with in-house fulfillment, you can ensure that the product quality and packaging meet your standards.
❌Reliance on suppliers
Dropshipping requires dependence on your suppliers. If they run out of stock or have slower shipping speeds, it can negatively impact your customer satisfaction and overall business.
❌Profit margins
Dropshipped products usually have lower profit margins compared to those fulfilled in-house. This is because you'll pay for the convenience of not storing, packing, and shipping the product yourself.
How Do I Implement Hybrid Dropshipping in My Business?
To get started, you’ll need to get up-to-date inventory quantities from all of your vendors. This includes inventory quantities from your own warehouse(s), any 3PLs you use, as well as external distributors and manufacturers. If you're looking for additional dropship vendors, check out Spark Shipping’s list of dropship suppliers & companies.
You’ll need an automated system that can pull in inventory quantities from multiple vendors for a single product, sum those inventory quantities and push the total inventory quantity to your shopping carts/selling channels.
You’ll also want to be sure that the reverse is true for order fulfillment. When sending orders to vendors, you’ll need your automation system to send orders to only the vendor who has the products in stock.
It's also recommended that your automation system is able to collect unit cost data from various vendors. Having this data will allow you to route orders to the vendor with the product in stock at the lowest unit cost. If multiple vendors exist for a single product, you can route orders to the lowest-cost distributor!
If you want to implement a system such as this in your business, check out a demo of Spark Shipping today!